Renewable-energy stocks have been under considerable pressure over the past couple of years. Surging interest rates have boosted borrowing costs, making it more expensive for many of these companies to fund new development projects. This has caused some concerns about their near-term growth prospects.
Those worries have weighed on the shares of NextEra Energy(NYSE: NEE), Brookfield Renewable(NYSE: BEPC)(NYSE: BEP), and Clearway Energy(NYSE: CWEN)(NYSE: CWEN.A), even though they've reaffirmed their growth forecasts several times. Between that pessimism and the long-term growth still ahead for renewable energy, they look like screaming buys this March.
High-end growth expected
Shares of NextEra Energy have slumped 25% over the past year. That price drop has driven its dividend yield up to around 3.7%, its highest level over the past decade. It has also weighed on its valuation. NextEra Energy currently trades at a forward price-to-earnings (P/E) ratio of 16.4. That's well below the more than 25 times forward earnings it fetched earlier last year.
NextEra Energy has lost ground despite continuing to deliver strong growth. It grew its adjusted earnings per share (EPS) by more than 9% last year, and has routinely reaffirmed its long-term target of delivering growth in adjusted EPS of 6% to 8% annually through 2026. The company said it would be disappointed if its results weren't at or near the top end of that range. And it recently extended its dividend growth outlook of around 10% annually through at least 2026.
NextEra's long-term growth potential also remains robust. It expects U.S. renewable and storage demand to accelerate in the coming years, growing from 175 gigawatts (GW) in the 2023-2026 timeframe to 250 GW between 2027 and 2030. The long-term opportunity remains massive at over 7,000 GW through 2050. That means the company should have plenty of power to continue growing its earnings at a healthy rate.
Powerful growth ahead
Brookfield Renewable stock has shed about 17% of its value over the past year, driving its dividend yield up to 5.8%. The decline also has it trading at a dirt cheap price for such a fast-growing company. It generated $1.67 per share of funds from operations (FFO) last year, up 7% from 2023. At the recent share price of $24.50, Brookfield Renewable trades at just 14.7 times FFO.
The company's results were a bit below its annual target of over 10% due to the timing of acquisitions, which closed later than expected in the fourth quarter. However, those deals give it lots of momentum in 2024 and beyond. In addition, it has a growing slate of expansion projects to power growth in the future.
Growth drivers include renewable-energy development projects, inflation-driven rate increases, margin enhancement activities, and mergers and acquisitions (M&A). Brookfield Renewable estimates that these will power FFO-per-share growth of over 10% through at least 2028. The company has multiple potential accelerants, including its growing sustainable solutions businesses such as carbon capture, recycling, and renewable natural gas. It's also exploring opportunities to decarbonize heavy industries like utilities and steel. These catalysts position Brookfield to deliver robust growth in the years ahead.
Executing its strategy
Clearway Energy's stock has tumbled nearly 30% over the past year, driving its dividend yield to an eye-popping 7.3%. That sell-off came even though the clean-power producer continues to target dividend growth toward the upper end of its target range, which is 5% to 8% annually.
The company has secured everything needed to execute that plan. It cashed in on the value of its thermal assets in 2022 and has been recycling those proceeds into higher-return renewable-energy investments. It has already identified investments to put that money to work. These deals give it a clear line of sight into growing its cash available for distribution from $342 million last year to $435 million over the next couple of years.
Clearway should have plenty of power to continue growing beyond 2026. Recently signed contract renewals for its natural gas power plants will provide a foundation for cash flow and dividend growth in 2027. Meanwhile, it has the financial flexibility to continue investing in new renewable-energy projects after exhausting its thermal sale proceeds. Given the growth ahead for renewable energy, there should be plenty of investment opportunities.
High-powered growth on sale
The market has sold off renewable-energy stocks on growth concerns. However, NextEra Energy, Brookfield Renewable, and Clearway Energy aren't seeing any slowdowns. That makes them look like screaming buys this month. Thanks to their visible growth prospects and higher-yielding payouts, they could produce high-powered total returns in the coming years.
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Matt DiLallo has positions in Brookfield Renewable, Brookfield Renewable Partners, Clearway Energy, and NextEra Energy. The Motley Fool has positions in and recommends Brookfield Renewable and NextEra Energy. The Motley Fool recommends Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
